Bank of America chief Brian Moynihan says the arrival of real-time payments combined with advances by cherry-picking fintech startups threatens to derail long-held assumptions about bank ROI levels from technology spending.
Finextra joined a high powered session at The Clearing House Annual Conference in New York, in which no less than four bank CEOs declared that cyber, mobile, real-time, fintech and changing customer needs are all propelling technology to the top of the boardroom agenda.
Innovations such as real-time payments - a hot topic throughout the conference as a result of The Clearing House’s initiative in this space - require banks to think differently about their expectations of ROI, the CEOs acknowledged.
“We have to be able to do it today and wait for at least 10 years to get payback,” Moynihan said.
His sentiments were echoed by Beth Mooney, chairman and CEO, KeyCorp, who added: “The use cases aren’t immediate, and we need to stay clear on having a vision for how to get there.”
Partnering with fintechs is one way to achieve speedier, ‘plug and play’ innovation, suggested Bruce Van Saun, chairman and CEO, Citizens Financial Group.
William Rogers, chairman and CEO of SunTrust Banks agreed that fintechs have a lot to offer. “They were built from the customer backwards, and we can learn from that,” he said.
However, as was reflected in other sessions during the conference, the CEOs were in no mood to overlook the initial aggression of certain fintechs - new spirit of collaboration or not. “We’re in a world where were are living in concentric circles and we are watching each other very carefully,” said Rogers. “The fintechs that come out and try to destroy us - they’re not our partners.”
In any event, banks can’t rely on tech startups to innovate for them, the CEOs said. “You can’t absolve your management team from understanding what is going on out there, and partnering with a fintech alone isn’t the answer,” Moynihan told delegates.
“We can’t outsource innovation to fintech partners,” agreed Van Saun. “It’s our responsibility to do things better.”
In the wake of the Trump/Republican election win, the US banking industry is buoyed by a new sense of optimism, as bank stocks rise in anticipation of a period of growth. However, banks need to acknowledge the many uncertainties that still exist around the personnel and policies of the new administration, the conference heard, and they must continue on the strategic paths they have created in response to changing customer demands, the rising threat of cyber and the influx of new, customer-driven fintech players.
KeyCorp's Mooney told delegates that the markets’ “constructive reaction to the election” is down to the fact it is “perceived as a catalyst. People are looking for something other than the status quo, and they believe that expected tax relief and regulatory relief will be a catalyst for growth.”
However, she added, “bankers are conservative and we must stay on our path until we have a more substantive indication of what will change”.
The priorities of the new administration are still not known for sure, pointed out Van Saun, while Rogers quipped, “A lot of uncertainty has been cleared, we just don’t know what.”
There are also some fundamental contradictions to consider, Rogers said. The markets might think the election outcome is positive for banking, but part of the reason for that outcome is that “70% of US consumers are feeling financial stress”.
As a consequence, banks need to be firmly in the “advice space”, he said. “We have to remember that everything emanates from the client, the community and the shareholder back - and what clients want is everything. Ubiquity in terms of access. A seamless experience across all access points. I firmly believe that digital and physical need to work together - and that every demographic assumption we make is wrong.”
The CEOs agreed that stereotypes of millennials never entering a branch and older people never banking online are misleading - and also acknowledged the growing challenge of unpredictable consumer behaviour (as evidenced in the US presidential election and the UK Brexit vote).
“Young kids won’t tell you what they’re going to do - they will just do it,” said BofA's Moynihan. However, all is far from lost, he said, due to the fact that “because our customers are always connected to us, we can have a constant dialogue with them”.
The upside of further automation is significant, Moynihan implied, stating that 10% of Bank of America’s costs still go on pushing paper - cheques and cash - through the system, and he called on The Clearing House to help its community even further to leverage technology such as tokenisation to drive more efficiencies.
Striking a cautionary note, he also highlighted the challenge of balancing innovation with resilience. “We are under pressure to innovate on the one hand, but not to innovate beyond the point of trust on the other,” he told delegates. Though banks are “uniquely positioned” to succeed here, failure isn’t an option, he said, “because if we lose the trust we don’t have the cost structures out there to redeploy non-automated means of doing business. We can’t not use the technology tools”.